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Why TWE started over in China

Published:  05 September, 2019

Treasury Wine Estates (TWE), the Australian owner of leading brand Penfolds, has shed some light on why it decided to call time on its distributor in China – and why setting up on its own steam has been key to growth in the country.

Having previously worked with a single distributor, TWE decided several years ago to set up its own distribution hub in China in order to switch to a more “localised” way of working via regional partners.

This shift has been fundamental, one of their representatives said, in enabling the international company to operate with a more ‘local’ feel and extend its reach to the country’s growing wine-drinking populace.

According to Wine Intelligence’s China Landscapes 2019 report, there are currently 32 million regular drinkers of imported wine between the ages of 18 and 54 in China.

That’s only 7% of a prospective 430 million adult drinkers.

Keen to keep chipping away at this 398 million opportunity, Émilie Steckenborn, head of education for Asia at TWE uses the example of French supermarket Carrefour as a way of explaining why local is the way to go.

“Carrefour is a big player in China and one of the first international supermarkets to make a lasting impact. It’s partly because it came here many years ago when online was in its infancy, but also because it did really well in localising.

“Carrefour here feels like a local Chinese grocery store that also happens to have a section for foreign food. That’s how you have to function in China,” she said.

The country’s size and its language barrier remain the two major hurdles to operating successfully in China, Steckenborn believes.

Factories are majority Mandarin-speaking, making it difficult for foreign companies to achieve the scale needed in order to appeal to the mass market.

Chinese brands benefit from strong distribution with home-grown brands such as Chateau Changyu and Great Wall accounting for 40% of domestic consumption (Chinese Customs Bureau).

Imported wine however is witnessing strong growth.

There are now 32 million regular drinkers of imported wine in the 18-54-age bracket, up from 30 million last year – a jump of two million.

Recently, Australia overtook France as the most imported wine country into China by value, helped along by a zero tax rate for imports, which has also helped Chile and New Zealand gain footholds.

According to IWSR Drinks Market Analysis for 2018, value of Australian wine into China is USD$2.4 billion, with a market share of 24.4% among imported wine. 

Despite favourable tax rates for certain countries, Steckenborn remains optimistic for the future of all imported wine into China.

“The wine has been booming in the past five years – you can feel the energy. China is a place where the figures for wine are only going up. And because of growing interest, consumers on the whole are more interested and more engaged,” she said.

Read the full analysis of the challenges and opportunities in China, see Harpers’ September edition of the magazine, available in print and to online subscribers.